Tribunals Ontario Tribunaux décisionnels Ontario Assessment Review Board Commission de révision de l’évaluation foncière
ISSUE DATE: October 07, 2022 FILE NO.: WR 181194
Assessed Person(s): Forty Creek Distillery Ltd. Appellant(s): Forty Creek Distillery Ltd. Respondent(s): Municipal Property Assessment Corporation Region 18 Respondent(s): Town of Grimsby Property Location(s): 297 South Service Road Municipality(ies): Town of Grimsby Roll Number(s): 2615-010-005-34100-0000 Appeal Number(s): 3436889 and 3489452 Taxation Year(s): 2021 and 2022 Hearing Event No.: 770664
Legislative Authority: Section 40 of the Assessment Act, R.S.O. 1990, c. A.31
APPEARANCES:
| Parties | Counsel |
|---|---|
| Forty Creek Distillery Ltd. | Alan W. Rankine, Ken West |
| Municipal Property Assessment Corporation | Donald G. Mitchell |
| Town of Grimsby | No one appeared |
HEARD: August 18, 2022 by video conference
ADJUDICATOR(S): Carly Stringer, Member
DECISION
OVERVIEW
1Forty Creek Distillery Ltd. (the “Appellant”) is appealing the assessment of 297 South Service Road in the Town of Grimsby, Ontario (the “Subject Property”) to the Assessment Review Board (the “Board”) for the 2021 and subsequent taxation years.
2The Municipal Property Assessment Corporation (“MPAC”) is responding to these appeals.
3The Town of Grimsby is a statutory party to these appeals but did not attend the hearing or otherwise provide submissions to the Board.
4In advance of the hearing held on August 18, 2022, MPAC and the Appellant (together, the “Parties”) settled their dispute relating to the current value of the Subject Property. At the hearing, the sole issue raised by the Appellant was whether a portion of the Subject Property ought to be classified in the commercial property class pursuant to clause 5(2)(b) of Ontario Regulation 282/98.
Background and Agreed Statement of Facts
5The Parties provided the Board with an Agreed Statement of Facts outlining the factual basis for the subject appeals, including articles submitted by MPAC relating to the distilling and aging of alcohol, specifically the barrel aging of whiskey. The Board relies on this Agreed Statement of Facts and relevant attachments for the following background.
The Subject Property
6The Appellant owns and operates the Subject Property. The Subject Property is a 165,413 sq. ft. whiskey distillery.
7Just over 45,000 sq. ft. of the Subject Property is the distillery portion where whiskey is manufactured, processed, and produced (the “Distillery”).
8The remaining roughly 120,000 sq. ft. is a warehouse (the “Warehouse”) connected to the Distillery through a corridor.
9The Warehouse consists of three parts: the finished goods warehouse, the packaging goods warehouse, and the barrel warehouse.
Aging Whiskey in the Warehouse
10The barrel warehouse houses wooden barrels containing distilled alcohol. The barrels are filled in the Distillery and transported to the Warehouse. The barrels are left sitting in the Warehouse for 1 to 12 years, which allows the contents of the barrels to age depending on the product. For instance, the Appellant manufactures a whiskey called the 2021 Limited Edition Master’s Cut, which ages in the barrel for five years.
11While the barrels are in the Appellant’s Warehouse, they are not rotated; topped up; stirred; tested; or otherwise subjected to human or mechanical contact.
12After the appropriate time has passed, barrels are removed from the Warehouse and returned to the Distillery where the contents are blended. Finished whiskey product is eventually stored in the finished goods portion of the Warehouse until distribution.
The Property Classification
13MPAC has classified the entire Subject Property – including the Distillery and the Warehouse – in the industrial property class in accordance with 6(1) of Ontario Regulation 282/98, which provides as follows:
The industrial property class consists of the following:
- Land used for or in connection with,
i. Manufacturing, producing or processing anything,
iii. storage, by a manufacturer, producer or processor, of anything used or produced in such manufacturing, production or processing if the storage is at the site where the manufacturing, production or processing takes place.
14The Appellant does not dispute that the Distillery is properly classified in the industrial property class. However, the Appellant challenges the property classification as it applies to the Warehouse.
Areas of Agreement and Issue for the Hearing
15The Parties agree that the appeals can be determined on the Agreed Statement of Facts and attachments thereto. The Board accepts and relies on these materials for any facts referenced in this decision.
16The Parties resolved the current value of the Subject Property in advance of the hearing. Therefore, the Board makes no determination regarding the current value.
17The Parties agree that the sole issue in this proceeding relates to the property classification that applies to the Warehouse, specifically whether the Warehouse qualifies for the commercial property class pursuant to 5(2)(b) of Ontario Regulation 282/98, which states:
5(2) For the 2000 and subsequent taxation years, a building that is used exclusively for storage purposes at the site where manufacturing, production or processing takes place is included in the commercial property class if the building is,
(b) linked to a building or structure or portion of a building or structure that is included in the industrial property class by means of a minimal connection or corridor constructed only for the purpose of moving material or goods between the buildings.
Result
18The Board finds that the Warehouse does not qualify for the commercial property class.
ANALYSIS
Issue 1 - Does the Warehouse qualify for the commercial property class pursuant to 5(2)(b) of [Ontario Regulation 282/98](https://www.canlii.org/en/on/laws/regu/o-reg-282-98/latest/o-reg-282-98.html)?
The Corridor or “Minimal Connection” Requirement
19The Agreed Statement of Facts confirms the Parties’ agreement that:
a. the Distillery is correctly included in the industrial property class;
b. the Warehouse is linked to the Distillery by a corridor;
c. this corridor, which is 25 ft. wide and 90 ft. long, is a “minimal connection”;
d. the corridor is only used for the purpose of moving material and goods between the Warehouse and the Distillery.
20Therefore, there is no dispute that the second requirement of 5(2)(b) – that the building must be linked to another building included in the industrial property class through a “minimal connection” or corridor constructed only to move material or goods between the buildings – is satisfied.
21The dispute between the Parties is focused on the first requirement of 5(2)(b), namely, whether the Warehouse is “a building that is used exclusively for storage purposes at the site where manufacturing, production or processing takes place”.
Appellant’s Submissions
22The Appellant submits that the Warehouse should be classified in the commercial property class because it squarely meets the requirements of 5(2)(b) based on the agreed facts.
23The Appellant submits that MPAC is conflating the use of the barrels (aging whiskey) with the use of the Warehouse (storing barrels). The Appellant submits that the barrels are not part of the structure of the Warehouse, but rather are stored within the Warehouse. The Appellant submits that the use of the barrels cannot be conflated with the use of the Warehouse, as that is akin to classifying property based on what it is storing rather than the fact that the Warehouse is designed for and used exclusively for storage purposes.
24The Appellant further submits that use of a property depends on the nature of the business and activities occurring on the property. The Appellant submits that manufacturing, production or processing requires an active process of something being done. The Appellant submits that the Warehouse is not being used for activity – just passive storage – therefore there is no manufacturing, production or processing taking place.
25The Appellant submits that applying the principles of statutory interpretation, storage must be interpreted contextually, remedially and given a large and liberal meaning. In this case, the barrels are stored in the Warehouse for 1 to 12 years and then removed for future use. Thus, the Warehouse is used exclusively for storage purposes.
MPAC’s Submissions
26MPAC submits that the entire Subject Property, including the Warehouse, is correctly classified in the industrial property class. MPAC submits that the Warehouse does not qualify for the commercial property class because the Warehouse is not used exclusively for storage purposes. MPAC submits that a key part of the whiskey manufacturing process – the aging of whiskey in oak barrels – occurs in the Warehouse. MPAC submits that, given this additional use, the Warehouse is not used exclusively for storage purposes but is also used for manufacturing or, alternatively, processing.
27MPAC relies on Hiram Walker & Sons Ltd. v. Walkerville (Town), 1933 CanLII 5 (SCC) (“Hiram Walker”), where the Supreme Court of Canada held that maturing and aging whiskey is part of the process of manufacturing whiskey. MPAC submits that this case is binding on the Board.
28MPAC further submits that manufacturing occurs in the Warehouse when considered in the context of the accepted definition of “manufacturing” and the facts of this case, particularly that the properties and qualities of the whiskey - including its colour, aroma and flavour - continue to change while aging in barrels.
29In the alternative, MPAC submits that the Warehouse is used for processing, which occurs when raw or natural materials are transformed into saleable items.
30MPAC submits that the exclusivity requirement in 5(2) of the Regulation means that any use for purposes other than storage, even if minimal, disqualifies the entire Warehouse from classification in the commercial property class. MPAC submits that even if the barrels are used, in part, for storage, their concurrent use for manufacturing and/or processing results in classification of the entire Subject Property, including the Warehouse, in the industrial property class.
Findings on Issue 1
Statutory Interpretation
31The ordinary rule of statutory interpretation is that “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”: Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42 at paragraph 26.
32The Legislation Act, 2006, SO 2006, c. 21, Sched. F, s. 64(1) confirms that:
64(1) An Act shall be interpreted as being remedial and shall be given such fair, large and liberal interpretation as best ensures the attainment of its objects.
(2) Subsection (1) also applies to a regulation, in the context of the Act under which it is made and to the extent that the regulation is consistent with that Act.
33The Supreme Court of Canada has stated that where a provision is precise, clear, and “admits of no ambiguity in its meaning or in its application to the facts, it must simply be applied”: Placer Dome Canada v. Ontario (Minister of Finance), 2006 SCC 20 (“Placer Dome”) at paragraph 23. To clarify, “legislative purpose may not be used to supplant clear statutory language, but to arrive at the most plausible interpretation of an ambiguous statutory provision”: Placer Dome at paragraph 24.
34The Board has previously held that the “overarching purpose of the [Assessment Act] is to regulate some of the aspects of municipal taxation”: National Car Rental (Canada) Inc. v Municipal Property Assessment Corporation, Region 15, 2022 CanLII 53352 (ON ARB) at paragraph 29. The Regulation achieves this purpose by prescribing how a property’s classification is to be determined, for the purpose of calculating and levying municipal property taxes.
Industrial or Commercial Property Class
35Section 5(2)(b) of Ontario Regulation 282/98 must be considered in reference to s. 6(1) because both sections deal with the property classification of property used for storage at manufacturing, production or processing sites.
36For ease of reference, the Board repeats those provisions here. Section 6 provides as follows:
(1) The industrial property class consists of the following:
Land used for or in connection with,
i. manufacturing, producing or processing anything,
iii. storage, by a manufacturer, producer or processor, of anything used or produced in such manufacturing, production or processing if the storage is at the site where the manufacturing, production or processing takes place.
37Section 5(2) provides that:
5(2) For the 2000 and subsequent taxation years, a building that is used exclusively for storage purposes at the site where manufacturing, production or processing takes place is included in the commercial property class if the building is,
(b) linked to a building or structure or portion of a building or structure that is included in the industrial property class by means of a minimal connection or corridor constructed only for the purpose of moving material or goods between the buildings.
38In light of the foregoing, and the materials provided by the Parties, the Board provides the following analysis and findings:
a. Per s. 6 of Ontario Regulation 282/98, land at a manufacturing site that is used to store anything used or produced in manufacturing, production or processing is classified in the industrial property class. Section 5(2) creates an exception to that rule where the two criteria described at paragraphs 20 and 21 above are satisfied. Based on the Agreed Statement of Facts and the submissions of the Parties, the Board finds that the “minimal connection” or “corridor” requirement of 5(2)(b) is satisfied.
b. With respect to whether the Warehouse is used “exclusively for storage purposes”, the Board finds that the wording of 5(2) is precise and clear. The Board finds no ambiguity in its meaning or in its application to the facts.
c. The Regulation does not define the words “exclusively” or “storage purposes”. However, the Board finds that the plain and ordinary meaning of the word “exclusively” is only; solely; to the exclusion of others; or limited to a single person, group, method, or category. The Board also finds that the plain and ordinary meaning of “storage” is the act of retaining or keeping something for future use.
d. The Board is satisfied, based on the evidence, that the Warehouse is being used for storage. The Appellant is clearly keeping items in the Warehouse for future use.
e. However, in order to satisfy the first requirement of 5(2)(b), the building use must be restricted to storage only. No other use may take place in the building in addition to storage.
f. The Board finds that the Warehouse is not being used exclusively for storage. The Board accepts the evidence that barrel aging is a particular method designed to effect a particular result in alcohol. The Board accepts the evidence that barrels stored in the Warehouse are being used to age whiskey, and finds that aging whiskey is a necessary stage in its manufacture, in the sense of the product changing over time from clear, distilled alcohol to the final product with its product-specific flavour and colour. The Board finds that there is a process occurring inside the barrels that affects the nature and quality of their contents, resulting in the final, marketable whiskey product.
g. In this sense, it is simply not accurate to say that the Warehouse is being used for storage purposes to the exclusion of any other purpose. Ultimately, while storage is indeed happening, it is not the only thing that is happening so as to fall within the exception of 5(2).
h. In reaching this conclusion, the Board has considered the Appellant’s position that this interpretation conflates the use of the Warehouse with the use of the barrels. It is not disputed that the maturation and aging of whiskey physically occurs within the Warehouse. The maturation and aging of the whiskey does not cease to occur in the Warehouse simply because the whiskey is contained in barrels. Further, to the extent that the barrels contribute in the maturation and aging process – for instance, affecting the flavour and colour of the whiskey – then the barrels themselves are part of the manufacture, production and process that is taking place in the Warehouse.
i. The Board has also considered the Appellant’s position that there is no activity occurring within the Warehouse beyond passive storage, and therefore no manufacturing, production or processing. This submission ignores that what is occurring within the barrels is part of the Appellant’s method of making whiskey. Aging is part of the Appellant’s technique to change the appearance, nature, quality and taste of alcohol into the final product. While aging may not be a manual or mechanical process, it is still a critical part of the Appellant’s method of production. The Board does not accept the Appellant’s submission in this regard.
j. The Board’s interpretation is consistent with the context. Namely, 6(1) of Ontario Regulation 282/98 requires that, as a starting point, storage space at a manufacturing site be classified in the industrial property class. Subsection 5(2) provides an exception to that general rule. The Board finds that, read in context, the legislature intended there be a narrow exception for storage at a manufacturing site, and that a building must truly be used only for storage to fit squarely within the exception. The Warehouse is not, and therefore does not fit within the exception.
39Applying the words of subsection 5(2) of Ontario Regulation 282/98 to the facts of this case, the Board finds that the Warehouse is not being used exclusively for storage purposes and, therefore, does not qualify for the commercial property class.
ORDER
40The Board orders that the Subject Property be confirmed in the industrial property class.
"Carly Stringer"
CARLY STRINGER MEMBER Assessment Review Board Website: www.tribunalsontario.ca/arb